Wound up companies ‘leave behind £4.7bn in unpaid debt each year’

BILLIONS of pounds worth of unpaid debt is left behind every year by businesses that are wound up voluntarily, according to a new report.

BILLIONS of pounds worth of unpaid debt is left behind every year by businesses that are wound up voluntarily, according to a new report.

Experian, the global information services company, has today published its latest BusinessIQ analysis, suggesting that an average of £4.7bn in unpaid debt may be left behind annually by UK firms that simply choose to close down.

Experian’s analysis reveals for the first time that among the business closures that are usually thought to be benign, billions of pounds worth of debt is left still owing to existing firms. The analysis looked at millions of supposedly solvent firms that have decided to close down voluntarily and have applied to be struck off the Companies House register since 2000.

It found that each year around 13% of these firms had debts that exceeded their total assets just before they closed.

Experian’s analysis reveals that each year, in addition to the billions in debt left behind by firms that are unable to pay their creditors and go through official insolvency proceedings, another 50% as much again may also be left behind as debt by the 13% of solvent companies that have voluntarily chosen to wind up.

For example, in 2011 the analysis reveals that hidden among the 300,000 firms that had wound up voluntarily, 36,000 had debts amounting to £5.9bn.

In comparison, 21,000 firms were declared insolvent during the same year with insolvency practitioners involved, and the total estimated debt left behind by them was £11.7bn.

Micro firms often wind up for reasons as simple as retirement or the opportunity to work in another company as an employee, so have little impact on other firms and leave behind little or no debt. However, some of these businesses choose to close down without informing creditors or settling debts.

Going back to 2000, Experian’s BusinessIQ analysis of the last filed accounts of these firms at the time of winding up has revealed that 13% of businesses may have been struggling and decided to wind up without settling debts. During times of recession, the number of firms winding up voluntarily increases significantly.

The analysis from Experian shows that individually these businesses often leave behind relatively small debts (around 35% have under £10,000 of total assets). However, the sheer volume of businesses that have wound up and left debt behind means that in reality it can amount to billions of pounds each year.

Max Firth, managing director, Experian Business Information Services, UK&I said: “Most firms that apply to be struck of the Register tend to have little or no debt owed to other businesses. However, there are some that do and for the first time, we have been able to show that hidden among these seemingly harmless business closures is a level of debt that has previously gone undetected.”

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